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As you grow your business, you have to delegate to employees to handle critical areas of the business. There’s no other way to scale – you cannot micro-manage all the departments as you continue to get bigger and bigger.

The risk, however, is that employees that you have delegated important and critical tasks can take advantage of you. Embezzlement and fraud are very real risks that you have to setup processes and procedures so that you can catch issues early on.

Jacksonville Jaguars Employee Stole More Than $22 Million

Last week, federal prosecutors filed a case against a former Jacksonville Jaguars employee, accusing him of stealing more than $22 million. According to the court filings, Amit Patel used the money to fund his “lavish lifestyle” that included sporting tickets, a new Tesla, a new truck, cryptocurrency, and real estate.

How did Patel steal this kind of money? He was the sole person responsible for the team’s Virtual Credit Card program. He was able to identify legitimate charges and then duplicate them, but changing the vendor names. He then sent that money to himself.

While the numbers are large and the employer famous, the story is pretty common. Not all end up in federal prosecutions, but the fraud and embezzlement will hurt your company.

Let’s look at some of the mistakes that companies often make and what you can learn from them to decrease the risk in your growing business.

For the record, I am not victim-blaming the Jaguars or any other company that has been the victim of employee fraud. But we can learn from what they all did to try to prevent our businesses from becoming the next victim.

Law Firm Payroll Manager Steals More than $2.5 million

It’s not as flashy as the Jacksonville Jaguars story from 2023, but now here we are in 2024, with a story from a Louisiana law firm where a payroll manager just pleaded guilty to a multi-year scheme to embezzle $2.5 million.

Shavondra Chambers worked at law firm Aaron & Gianna as a payroll manager from 2017 to 2023. Over the course of at least 143 payroll transfers, Chambers added reimbursements to her own paycheck. The reimbursements started at $10,500 and grew, especially after the 2020 pandemic started.

The law firm caught the fraud when the payroll manager went on vacation. When someone else had to handle payroll, they found the discrepancy in that payroll and then upon further investigation, found the additional funds that had been stolen.

Mistake #1: One Person in Charge of the Money

The number one mistake that most companies make is that one person is in charge of the money. Or at least a critical system.

You think you can trust the employee, but when they see the big numbers getting moved around, it becomes real tempting for them to take a little for themselves.

The embezzlement usually starts small – enough to cover a small lunch. But then when the employee isn’t caught, they are tempted to try for bigger amounts. And suddenly you are losing hundreds of thousands or millions of dollars.

In the case of the Jags, Patel was the sole person responsible for the virtual credit card program. Without oversight, he was able to siphon off millions of dollars. If the Jags had another person that was co-responsible for the system, the other person could have caught the embezzlement much earlier, saving the company millions.

In addition, when people are watched or monitored, they know the risk of getting caught is higher so they are less likely to try.

Lesson: Establish a two-person system with checks and balances so that one person is not left with all the keys to the bank.

Mistake #2: Not Reviewing Source Documents

Even when you have multiple people in your finance and accounting systems, as a small business owner, you still need to review the source documents.

I typically recommend that my clients have at least monthly financial reviews with their teams. Prior to the meetings, the financial statements should be provided to the owner(s) for review. Along with this, they should also receive the workpapers – including the original bank statements, credit card statements, and more.

As the Jags found out, you can reconcile all your statements and still be the victim of fraud. Because the checks or the electronic transactions did go through and they are on the books. But when you review the original source documents, you can see when the names don’t match the accounting system entries.

Lesson: Review the original source documents for your financial accounts. Don’t rely on the internally generated documents.

Mistake #3: Not Investigating Budget Discrepancies

When you operate with a budget, you have an expectation of what the spend will be for each category of expenses. When fraud happens, the money is going to be somewhere on the Profit and Loss (Income) Statement. It will be reflected either in revenue decreases or expense increases.

In some sophisticated cases, you may also see it on the balance sheet – where assets are being added or removed. This takes a little more skill than the average employee will be able to accomplish or have access to systems to change.

This is one reason why having a budget is so important. It helps you identify when you overspend in certain categories. As soon as you identify a category that is higher than expected, you, as the business owner, should be diving into the transactions to identify the WHY on the overspend.

🚨 CAUTION: When you have multi-year fraud schemes going on, the prior year’s fraud is baked into the budget. Often budgets are created as an increase for year-over-year spending. So if you have fraud in year one on say hotel costs and you expect spending to go up 10%, you are budgeting for the fraud costs to go up as well.

As you build your budget, it is important to keep in mind the typical percentages of revenue that each category should be. Things like advertising, payroll, and travel should be a consistent percentage of revenue, unless you are intentionally over or under-investing in that category to fuel your business growth and other objectives.

Lesson: Immediately investigate any budget discrepancies to identify potential fraud. Don’t have a budget? Create one now!

Mistake #4: Being a Checked Out Owner

It’s tempting as your business grows to let the employees handle it all and for you to become checked out. Maybe that means that you are living in semi-retirement, working on another business, or caring for your family.

No matter the reason, not being on top of things in your business is a major risk factor in allowing or permitting embezzlement to happen.

When you are checked out, you won’t know your customers, the pricing or payment methods. You won’t know the vendors and the contract terms. You won’t even have an idea about the budget or whether it is being followed.

Remember, when employees know that they are being watched and measured, they are less likely to color outside the lines – or commit embezzlement or other frauds.

Thus, one of the biggest keys to preventing fraud in your business is being an active owner and manager – having regular financial reviews, knowing the systems and processes in your business, and interacting with all parts of the business.

Lesson: Being an active participant and manager of your business is key to preventing fraud in your business.

Need Help Preventing Fraud in Your Business?

Like many other issues affecting your business, preventing fraud is an iterative process that must be adapted as fraudulent schemes evolve. Springboard Legal can help you by establishing best practices in your policies and procedures and helping you monitor the systems within your business.

If you are a growing company and find that you are making the mistakes that we’ve talked about here, you may be a great candidate to join the Springboard Strategy Sessions, where you get monthly feedback and help improving all aspects of your business – from customer and revenue growth, establishing policies and procedures, and risk mitigation. Springboard Strategy Sessions can help you balance the active management without being a micro-manager so that you can continue to grow your company.

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